9058009889

CHAPTF.R T T T

42

86230

Real cos ta, In fant., c o n a 1 s t In the production which i s foregone and In the os es of resources t.hat are displaoed heca u se of the adoption of the projaot.; sińce no production 1s lost. as a consequence of employing the linskilled workers, t.his 1 m p 1 i e s t.hat. the real va 1 ue of t.heir work 1s zero, despite the fact. t.hat they are pa 1 d a money wagę w2 ; the 't.rua* valne of t.heir work 1s -according to standard cost/henefit. analysis- a 'shadow price'    (in t.his case a 'shadow wagę'), w* < w2 , which

corresponds to the value pf foregone production, if any (In thls example, as we sald, 1s zero, hut. it conld also be a posit 1ve valne -alt.hough smali er t.han the prevailing wagę- if some production 1s foregone or some use of resonrces is displaoed hecause of t.he hiring of the unemployed people). The real coRt will t.hushe

RC * p(T) T + w1 N1 + w* N2 < FC    [8]

The project. will be adopt.ed If what. 1 s produced , R, is larger t.han or equa 1 to 1ts real cost. RC, 1 ndependen1.1 y of the purely flnanda) cost.. Therefore, In t.his case, the * standard of valne' 1s the real va1ue of t.he product. Thls 'rule* perfect.ly corresponds to the • 'sufficlent* propor t. i ona 1 1 ty condl tlon 1llust.rat.ed In sect.lon 3 above.

However 1t. Is    also ev1dent t.hat.    no    posit.1ve    value

whatsoever i s a 1.1. a o h e d to lowering unemployment, desplt.e what pollcy makers    mlght. off Icial ly    st.at.e In an opposit.e

dl rect.1 on, when    they are dlrect.ly    quest.1oned    about

unemployment; at. least. as long as t.he above deaorl bed way of performing cost./henefit. analyses will continua t.o be adopt.ed.

Tf a pos i ti ve va1tie were aot.ually at.t.ached t.o lowering unemployment. , t.his    should result. 1 n t.he    feaslbilit.y (t.hat. 1 s ,

ac cep tance) of project. s for which RC    >    R (comput.ed    as In

formula [8]), a t. t.he condl tlon t.hat. the el1m1nat.ion of t.hat. unemployment. 1 s est. Imat.ed t.o have at. least. the same value of the loss of production (RC - R) associat.ed wit.h the adoption of the project..

Tn fact, saylng t.hat. somet.hlng (unemployment) ¹ has a value*, Implies    t.hat. one is    ready t.o    g1ve up somet.hlng else

(production) in    order t.o get.    some morę    of t.he former. Thls    1s

not. new. Tf one    has several    part.lally    1 ncoopa t. i b 1 e goals,    so

t.hat. one can not. reach them    all, one    has t.o ^ł t.rade off'    (as

economlst.s say), or to ¹ s a c r 1 f 1 c e * (as ordinary people say), some of the goals 1 n order t.o obt.ain morę of the remaining ones .

Not.hlng new, as we sald. Do you remember t.he Phillips curve regarded as 'a menu of economlc policies¹? Since less unemployment appeared t.o prodnce high er Inf lat.ion rat.es, t.he pollcy maker had to choose bet. we en some point, less of t.he rat.e of unemployment. and some point, morę of the rat.e of Inf latlon; and the act.ual choinę depended -it. was sald- on t.he re lat. ive liportance that. t.he policy maker at.tribut.ed t.o lowering unemployment. in relat.ion wit.h t.he st.abilit.y of prices.